China's Li sees economic stability though tough task ahead

China's economy is showing signs of stabilising even as it undergoes a major transformation that won't be easy in the near term, Premier Li Keqiang said Thursday.

The remarks by Li signal an increased openness among top officials about the nation's growth challenges after the $10 trillion-plus economy expanded last year at its slowest pace in a quarter-century. Policy makers want economic growth to be driven more by consumers and services as part of a plan to ease off reliance on exports and debt-funded investment.

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"We are experiencing an upgrade and transformation process, and the economy inevitably has throes," Li said in a speech at the Boao Forum, billed as an Asian version of the World Economic Forum at Davos and held annually on China's southern island province of Hainan. "This will not be an easy job, but we have confidence and the ability to do so."

At the same time, Li said the economy had gotten off to a "good and stable" start in 2016 and flagged that the government's low debt levels give policy makers the tools to ensure they can achieve growth in the range of 6.5 per cent to 7 per cent. "We have more policy tools for the Chinese economy to maintain steady and long-term growth," he said.

Likening China's economy to a high-speed train that he said he rode to the conference, Li said authorities are aiming for sustainable and higher-quality growth. Sentiment toward the world's second-largest economy has improved after a stock market rally since early February.

Even so, analysts question the sustainability of the almost 13 per cent advance in the Shanghai Composite Index since its low on January 28 - and the Communist Party's commitment to timely reforms that will place China's debt-burdened and decelerating economy on a sustainable growth path.

At China's just-completed annual legislative sessions, top leaders outlined a more flexible growth target of 6.5 per cent to 7 per cent while signaling a determination to reduce capacity in the bloated coal and steel industries, potentially putting millions out of work.

To ease the sting, China will increase fiscal stimulus measures, planning a budget deficit of 3 per cent of gross domestic product in 2016 - wider than last year's 2.3 per cent. While promising tough reforms, the government also has made clear it will do all it can to avoid mass unemployment.

"The premier was very forthright about the challenges as well as the opportunities," Reuben Jeffery III, president and chief executive officer of Rockefeller & Co., said later on a panel at the forum.

Li repeated assurances that the government isn't pursuing a competitive devaluation of the yuan and, while preaching policy flexibility, pushed back against expectations for an all-out stimulus on a scale of that unleashed after the 2008 global financial crisis.

'Will Not Manipulate'

"Because we are pushing forward structural reform, short-term, small-scale fluctuations are hard to avoid," Li said in the speech. "We will not manipulate the economy against the rules of economic development and market operations because of these small fluctuations."

Li also called for deeper regional cooperation on economic policies to avoid negative spillover effects. China will promote an Asian financial cooperation association and push for a regional trade deal this year.

The Chinese premier warned that ripples from the 2008 global financial crisis are still being felt by the world economy, which he said is still experiencing a "profound adjustment."